Robert Reich

Why the GOP Can't Learn

2013-06-19T10:07:17-04:00

It's as if they didn't learn a thing from the 2012 elections. Republicans are on the same suicide mission as before -- trying to block immigration reform (if they can't scuttle it in the Senate, they're ready to in the House), roll back the clock on abortion rights (they're pushing federal and state legislation to ban abortions after the first 22 weeks), and stop gay marriage wherever possible.

As almost everyone knows by now, this puts them on the wrong side of history. America is becoming more ethnically diverse, women are gaining economic and political power, and young people are more socially libertarian than ever before.

Why can't Republicans learn?

It's no answer to say their "base" -- ever older, whiter, more rural and male -- won't budge. The Democratic Party of the 1990s simply ignored its old base and became New Democrats, spearheading a North American Free Trade Act (to the chagrin of organized labor), performance standards in classrooms (resisted by teachers' unions) and welfare reform and crime control (upsetting traditional liberals).

The real answer is the Republican base is far more entrenched, institutionally, than was the old Democratic base. And its power is concentrated in certain states -- most of the old Confederacy plus Arizona, Alaska, Indiana, and Wisconsin -- which together exert more of a choke-hold on the Republican national party machinery than the old Democrats, spread widely but thinly over many states, exerted on the Democratic Party.

These Republican states are more homogenous and conspicuously less like the rest of America than the urbanized regions of the country that are growing more rapidly. Senators and representatives from these states naturally reflect the dominant views of their constituents -- on immigration, abortion, and gay marriage, as well as guns, marijuana, race, and dozens of other salient issues. But these views are increasingly out of step with where most of the nation is heading.

This state-centered, relatively homogenous GOP structure effectively prevents the Party from changing its stripes. Despite all the post-election rhetoric about the necessity for change emanating from GOP leaders who aspire to the national stage, the national stage isn't really what the GOP is most interested in or attuned to. It's directed inward rather than outward, to its state constituents rather than to the nation.

This structure also blocks any would-be "New Republicans" such as Chris Christie from gaining the kind of power inside the party that a New Democrat like Bill Clinton received in 1992. The only way they'd be able to attract a following inside the Party would be to commit themselves to policies they'd have to abandon immediately upon getting nominated, as Mitt Romney did with disastrous results.

It's true that by 1992 Democrats were far more desperate to win the presidency -- having been in the wilderness for twelve years -- than today's GOP appears to be. Nonetheless it's doubtful the GOP will be willing to eschew its old base even if it loses the presidency again in 2016, because without its collection of relatively homogenous states, there just isn't much of a GOP.

The greater likelihood is a steady eclipse of the Republican Party at the national level, even as it becomes more entrenched in particular states. Those states can be expected to become regressive islands of backwardness within a nation growing steadily more progressive.

The GOP's national role will be primarily negative -- seeking to block, delay, and filibuster measures that will eventually become the law of the land in any event, while simultaneously preaching "states' rights" and praying for conservative majorities on the Supreme Court.

In other words, more of the same.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

The Two Centers of Unaccountable Power in America, and Their Consequences

2013-06-13T19:57:11-04:00

There are two great centers of unaccountable power in the American political-economic system today -- places where decisions that significantly affect large numbers of Americans are made in secret, and are unchecked either by effective democratic oversight or by market competition.

One goes by the name of the "intelligence community" and its epicenter is the National Security Agency within the Defense Department. If we trusted that it reasonably balanced its snooping on Americans with our nation's security needs, and that our elected representatives effectively oversaw that balance, there would be little cause for concern. We would not worry that the information so gathered might be misused to harass individuals, thereby chilling free speech or democratic debate, or that some future government might use it to intimidate critics and opponents. We would feel confident, in other words, that despite the scale and secrecy of the operation, our privacy, civil liberties, and democracy were nonetheless adequately protected.

But the NSA has so much power, and oversight of it is so thin, that we have every reason to be concerned. The fact that its technological reach is vast, its resources almost limitless, and its operations are shrouded in secrecy, make it difficult for a handful of elected representatives to effectively monitor even a tiny fraction of what it does. And every new revelation of its clandestine "requests" for companies to hand over information about our personal lives and communications further undermines our trust. To the contrary, the NSA seems to be literally out of control.

The second center of unaccountable power goes by the name of Wall Street and is centered in the largest banks there. If we trusted that market forces kept them in check and that they did not exercise inordinate influence over Congress and the executive branch, we would have no basis for concern. We wouldn't worry that the Street's financial power would be misused to fix markets, profit from insider information, or make irresponsible bets that imperiled the rest of us. We could be confident that despite the size and scope of the giant banks, our economy and everyone who depends on it were nonetheless adequately protected.

But those banks are now so large (much larger than they were when they almost melted down five years ago), have such a monopolistic grip on our financial system, and exercise so much power over Washington, that we have cause for concern. The fact that not a single Wall Street executive has been held legally accountable for the excesses that almost brought the economy to its knees five years ago and continues to burden millions of Americans, that even the Attorney General confesses the biggest banks are "too big to jail," that the big banks continue to make irresponsible bets (such as those resulting in JP Morgan Chase's $6 billion "London Whale" loss), and that the Street has effectively eviscerated much of the Dodd-Frank legislation intended to rein in its excesses and avoid another meltdown and bailout, all offer evidence that the Street is still dangerously out of control.

It is rare in these harshly partisan times for the political left and right to agree on much of anything. But the reason, I think, both are worried about the encroachments of the NSA on the privacy and civil liberties of Americans, as well as the depredations of "too big to fail or jail" Wall Street banks on our economy, is fundamentally the same: It is this toxic combination of inordinate power and lack of accountability that renders both of them dangerous, threatening our basic values and institutions.

That neither Republicans nor Democrats have done much of anything to effectively rein in these two centers of unaccountable power suggests that, if there is ever to be a viable third party in America, it will be borne of the ill-fated consequences.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

What We Need Now: A National Economic Strategy For Better Jobs

2013-06-11T15:16:56-04:00

Jobs are returning with depressing slowness, and most of the new jobs pay less than the jobs that were lost in the Great Recession.

Economic determinists -- fatalists, really -- assume that globalization and technological change must now condemn a large portion of the American workforce to under-employment and stagnant wages, while rewarding those with the best eductions and connections with ever higher wages and wealth. And therefore that the only way to get good jobs back and avoid widening inequality is to withdraw from the global economy and become neo-Luddites, destroying the new labor-saving technologies.

That's dead wrong. Economic isolationism and neo-Ludditism would reduce everyone's living standards. Most importantly, there are many ways to create good jobs and reduce inequality.

Other nations are doing it. Germany was generating higher real median wages until recently, before it was dragged down by austerity imposed by the European Union. Singapore and South Korea continue to do so. Chinese workers have been on a rapidly-rising tide of higher real wages for several decades. These nations are implementing national economic strategies to build good jobs and widespread prosperity. The United States is not.

Any why not? Both because we don't have the political will to implement them, and we're trapped in an ideological straightjacket that refuses to acknowledge the importance of such a strategy. The irony is we already have a national economic strategy but it's been dictated largely by powerful global corporations and Wall Street. And, not surprisingly, rather than increase the jobs and wages of most Americans, that strategy has been increasing the global profits and stock prices of these giant corporations and Wall Street banks.

If we had a strategy designed to increase jobs and wages, what would it look like? For starters, it would focus on raising the productivity of all Americans through better education -- including early-childhood education and near-free higher education. That would require a revolution in how we finance public education. It's insane that half of K-12 budgets still come from local property taxes, for example, especially given that we're segregating geographically by income. And it makes no sense to pay for the higher education of young people from middle and lower-income families through student debt; that's resulted in a mountain of debt that can't or won't be paid off, and it assumes that higher education is a private investment rather than a public good.

It would also require greater accountability by all schools and universities for better outcomes -- but not just better test results. The only sure thing standardized tests measure is the ability to take standardized tests. Yet the new economy demands problem-solving and original thinking, not standardized answers.

Better education would just be a start. We would also unionize low-wage service workers in order to give them bargaining power to get better wages. Such workers -- mostly in big-box retailers, fast-food chains, hospitals, and hotel chains -- aren't exposed to global competition or endangered by labor-substituting technologies, yet their wages and working conditions are among the worst in the nation. And they represent among the fastest-growing of all job categories.

We would raise the minimum wage to half the median wage and expand the Earned Income Tax Credit. We'd also eliminate payroll taxes on the first $15,000 of income, making up the shortfall in Social Security by raising the cap on income subject to the payroll tax.

We'd also restructure the relationships between management and labor. We would require, for example, that companies give their workers shares of stock, and more voice in corporate decision making. And that companies spend at least 2 percent of their earnings upgrading the skills of their lower-wage workers.

We'd also condition government largesse to corporations on their agreement to help create more and better jobs. For example, we'd require that companies receiving government R&D funding do their R&D in the U.S.

We would prohibit companies from deducting the cost of executive compensation in excess of more than 100 times the median compensation of their employees or the employees of their contractors. And bar them from providing tax-free benefits to executives without providing such benefits to all their employees.

And we would turn the financial system back into a means for investing the nation's savings rather than a casino for placing huge and risky bets that, when they go wrong, impose huge costs on everyone else.

There's no magic bullet for regaining good jobs and no precise contours to what such a national economic strategy might be, but at the very least we should be having a robust discussion about it. Instead, economic determinists seem to have joined up with the free-market ideologues in preventing such a conversation from even beginning.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

The Quiet Closing of Washington

2013-06-09T18:18:17-04:00

Conservative Republicans in our nation's capital have managed to accomplish something they only dreamed of when Tea Partiers streamed into Congress at the start of 2011: They've basically shut Congress down. Their refusal to compromise is working just as they hoped: No jobs agenda. No budget. No grand bargain on the deficit. No background checks on guns. Nothing on climate change. No tax reform. No hike in the minimum wage. Nothing so far on immigration reform.

It's as if an entire branch of the federal government -- the branch that's supposed to deal directly with the nation's problems, not just execute the law or interpret the law but make the law -- has gone out of business, leaving behind only a so-called "sequester" that's cutting deeper and deeper into education, infrastructure, programs for the nation's poor, and national defense.

The window of opportunity for the president to get anything done is closing rapidly. Even in less partisan times, new initiatives rarely occur after the first year of a second term, when a president inexorably slides toward lame duck status.

But the nation's work doesn't stop even if Washington does. By default, more and more of it is shifting to the states, which are far less gridlocked than Washington. Last November's elections resulted in one-party control of both the legislatures and governor's offices in all but 13 states -- the most single-party dominance in decades.

This means many blue states are moving further left, while red states are heading rightward. In effect, America is splitting apart without going through all the trouble of a civil war.

Minnesota's Democratic-Farmer-Labor Party, for example, now controls both legislative chambers and the governor's office for the first time in more than two decades. The legislative session that ended a few weeks ago resulted in a hike in the top income tax rate to 9.85 percent, an increased cigarette tax, and the elimination of several corporate tax loopholes. The added revenues will be used to expand early-childhood education, freeze tuitions at state universities, fund jobs and economic development, and reduce the state budget deficit. Along the way, Minnesota also legalized same-sex marriage and expanded the power of trade unions to organize.

California and Maryland passed similar tax hikes on top earners last year. The governor of Colorado has just signed legislation boosting taxes by $925 million for early-childhood education and K-12 (the tax hike will go into effect only if residents agree, in a vote is likely in November).

On the other hand, the biggest controversy in Kansas is between Gov. Sam Brownback, who wants to shift taxes away from the wealthy and onto the middle class and poor by repealing the state's income tax and substituting an increase in the sales tax, and Kansas legislators who want to cut the sales tax as well, thereby reducing the state's already paltry spending for basic services. Kansas recently cut its budget for higher education by almost 5 percent.

Other rightward-moving states are heading in the same direction. North Carolina millionaires are on the verge of saving $12,500 a year, on average, from a pending income-tax cut even as sales taxes are raised on the electricity and services that lower-income depend residents depend on. Missouri's transportation budget is half what it was five years ago, but lawmakers refuse to raise taxes to pay for improvements.

The states are splitting as dramatically on social issues. Gay marriages are now recognized in 12 states and the District of Columbia. Colorado and Washington state permit the sale of marijuana, even for non-medical uses. California is expanding a pilot program to allow nurse practitioners to perform abortions.

Meanwhile, other states are enacting laws restricting access to abortions so tightly as to arguably violate the Supreme Court's 1973 decision in Roe v. Wade. In Alabama, the mandated waiting period for an abortion is longer than it is for buying a gun.

Speaking of which, gun laws are moving in opposite directions as well. Connecticut, California, and New York are making it harder to buy guns. Yet if you want to use a gun to kill someone who's, say, spray-painting a highway underpass at night, you might want to go to Texas, where it's legal to shoot someone who's committing a "public nuisance" under the cover of dark. Or you might want to live in Kansas, which recently enacted a law allowing anyone to carry a concealed firearm onto a college campus.

The states are diverging sharply on almost every issue you can imagine. If you're an undocumented young person, you're eligible for in-state tuition at public universities in 14 states (including Texas). But you might want to avoid driving in Arizona, where state police are allowed to investigate the immigration status of anyone they suspect is here illegally.
And if you're poor and lack health insurance you might want to avoid a state like Wisconsin that's refusing to expand Medicaid under the Affordable Care Act, even though the federal government will be picking up almost the entire tab.

Federalism is as old as the Republic, but not since the real Civil War have we witnessed such a clear divide between the states on central issues affecting Americans.

Some might say this is a good thing. It allows more of us to live under governments and laws we approve of. And it permits experimentation: Better to learn that a policy doesn't work at the state level, where it's affected only a fraction of the population, than after it's harmed the entire nation. As the jurist Louis Brandies once said, our states are "laboratories of democracy."

But the trend raises three troubling issues.

First, it leads to a race to bottom. Over time, middle-class citizens of states with more generous safety nets and higher taxes on the wealthy will become disproportionately burdened as the wealthy move out and the poor move in, forcing such states to reverse course. If the idea of "one nation" means anything, it stands for us widely sharing the burdens and responsibilities of citizenship.

Second, it doesn't take account of spillovers -- positive as well as negative. Semi-automatic pistols purchased without background checks in one state can easily find their way to another state where gun purchases are restricted. By the same token, a young person who receives an excellent public education courtesy of the citizens of one states is likely to move to another state where job opportunity are better. We are interdependent. No single state can easily contain or limit the benefits or problems it creates for other states.

Finally, it can reduce the power of minorities. For more than a century "states rights" has been a euphemism for the efforts of some whites to repress or deny the votes of black Americans. Now that minorities are gaining substantial political strength nationally, devolution of government to the states could play into the hands of modern-day white supremacists.

A great nation requires a great, or at least functional, national government. The Tea Partiers and other government-haters who have caused Washington to all but close because they refuse to compromise are threatening all that we aspire to be together.

ROBERT B.
REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Economic Storm Clouds Ahead

2013-05-31T16:49:22-04:00

Economic forecasters exist to make astrologers look good. But the recent jubilance is enough to make even weather forecasters blush. "Just look at the bull market! Look at home prices! Look at consumer confidence!"

Please.

I can understand the jubilation in the narrow sense that we've been down so long everything looks up. Plus, professional economists tend to cheerlead because they believe that if consumers and businesses think the future will be great, they'll buy and invest more -- leading to a self-fulfilling prophesy.

But prophesies can't be self-fulfilling if they're based on wishful thinking.

The reality is we're still in the doldrums, and the most recent data gives cause for serious worry.

Almost all the forward movement in the economy is now coming from consumers -- whose spending is 70 percent of economic activity. But wages are still going nowhere, which means consumer spending will slow because consumers just don't have the money to spend.

On Thursday the Commerce Department reported that consumer spending rose 3.4 percent in the first quarter of this year. But the personal savings rate dropped to 2.3 percent -- from 5.3 percent in the last quarter of 2012. That's the lowest level of savings since before the Great Recession. You don't have to be an economic forecaster, or an astrologer, to see this can't go on.

Yes, home prices are rising. The problem is, they're beginning to rise above their long-run historical average. (Before the housing crash they were were way, way above the long-run average.) So watch your wallets. We've been here before: The Fed is keeping interest rates artificially low, allowing consumers to get low home-equity loans and to borrow against the rising values of their homes. Needless to say, this trend, too, is unsustainable.

What about the stock market? It's time we stopped assuming that a rising stock market leads to widespread prosperity. Over 90 percent of the value of the stock market -- including 401(k)s and IRAs -- is held by the wealthiest 10 percent of the population.

Moreover, the main reason stock prices have risen is corporate profits have soared. But that's largely because corporations have slashed their payrolls and keep them low. Which brings us full circle, back to the fundamental fact that wages that are going nowhere for most people.

Not even fat corporate profits are sustainable if American consumers don't have enough money in their pockets. Exports can't make up for the shortfall, given the rotten shape Europe is in and the slowdown in Asia.

So don't expect those profits to continue. In fact, the new Commerce Department report shows that corporate profits shrank in the first quarter, reversing some of the gains in the second half of 2012.

And, by the way, the full effect of the cuts in government spending hasn't even been felt yet. The sequester is going to be a large fiscal drag starting next month.

Look, I don't want to rain on the parade. But any self-respecting weather forecaster would warn you to zipper up and take an umbrella. Don't be swayed by all the sunny talk. There are too many storm clouds ahead.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Reframing the Debate

2013-05-30T12:12:06-04:00

Even as the economy slowly recovers from the worst downturn since the Great Depression, government-haters and deficit-hawks are sticking to their same story: Americans have lived beyond their means and must now learn to live within them.

The reality is quite different: The means of most Americans haven't kept up with what the economy could and should provide. The economy is twice as large as it was three decades ago, and yet the typical American is earning about the same, adjusted for inflation. All the gains have been going to the top.

The notion that we can't afford to invest in the education of our young, or rebuild our crumbling infrastructure, or continue to provide Social Security and Medicare and Medicaid, or expand health insurance is absurd.

If the median wage had kept up with the overall economy, it would be over $90,000 today -- and tax revenues would be more than adequate to cover all our needs. If the wealthy were paying the same marginal tax rate they were paying up to 1981, tax revenues would be far more.

Get it? The problem isn't that most Americans have been living too well. The problem is we haven't been living nearly as well as our growing economy should have allowed us to live.

Widening inequality is the culprit. If President Obama is looking for a central theme for his second term, this is it.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

A Time for Harry Reid's Backbone

2013-05-29T10:50:36-04:00

Don't be sidetracked today with the news of Michele Bachmann's decision not to run again. That's small potatoes relative to the biggest political and economic issue -- and showdown -- emerging in Congress.

Some background: The Court of Appeals for the D.C. Circuit isn't just the main feeder into the Supreme Court (four of the current nine justices served there before ascending to the Supremes) but, even more critically, is the court that reviews most major federal regulations -- those emerging under Obamacare, Dodd-Frank, the Environmental Protection Agency, and hundreds of other laws and agencies.

Four of its current judges were appointed by Republican presidents; three by Democrats. It has three vacancies. Senate Republicans want to keep the current ratio of four to three, and have no interest in giving Obama a majority on this important court. They've held up almost all of Obama's court appointments, sometimes for years, effectively preventing him from putting his picks in the federal court system as elsewhere.

Now the president is nominating judges to fill all three of these crucial D.C. court of appeals vacancies at once. He's also looking ahead at the strong probability that at least one Supreme Court justice, most likely Ruth Bader Ginsburg, will retire within the next two years, and he'll need to get a replacement through the Senate.

Senate Republicans under the cynical direction of Mitch McConnell have abused the filibuster system, preventing votes on almost everything the president has wanted.

Harry Reid punted on changing the filibuster rules, but he could -- and in my view now should -- propose changing them for judicial appointments, which he can accomplish with the votes of 51 senators.

A president's court picks shouldn't require 60 Senate votes. The Constitution is quite specific about when "super-majorities" are needed, and makes no mention of super-majorities for court appointments.

Reid is not known for his strong backbone, but here's an instance where he owes his backbone to posterity. You might even write to him and tell him so.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Beware Capitalist Tools

2013-05-27T17:47:46-04:00

Forbes magazine likes to call itself a "capitalist tool," and routinely offers tool-like justifications for whatever it is that profit-seeking corporations want to do. Recently it has deployed its small army of corporate defenders and apologists in the multi-billion dollar fight to keep the effective tax rates of global corporations low.

One of its contributors, Tim Worstall, recently took me to task for suggesting that a way for citizens to gain some countervailing power over large global corporations is for governments to threaten denial of market access unless corporations act responsibly.

He argues that the benefits to consumers of global corporations are so large that denial of market access would hurt citizens more than it would help them. The "value to U.S. consumers of Apple is they can buy Apple products," Worstall writes. "Why would you want to punish U.S. consumers, by banning them from buying Apple products, just because Apple obeys the current tax laws?"

Wortstall thereby begs the central question. If global corporations obeyed all national laws -- the spirit of the laws as well as the letter of them -- and didn't use their inordinate power to dictate the laws in the first place by otherwise threatening to take their jobs and investments elsewhere, there'd be no issue.

It's the fact of their power to manipulate laws by playing nations off against one another -- determining how much they pay in taxes, as well as how much they get in corporate welfare subsidies, how much regulation they're subject to, and so on -- that raises the question of how citizens can countermand this power.

Consumer benefits may sometimes exceed such costs. But, as we've painfully learned over the years (the Wall Street meltdown, the BP oil spill in the Gulf, consumer injuries and deaths from unsafe products, worker injuries and deaths from unsafe working conditions, climate change brought on by carbon dioxide emissions, and, yes, manipulation of the tax laws -- need I go on?), the social costs may also exceed consumer benefits.

Why would an economics writer for a seemingly sophisticated national publication such as Forbes deny the existence of corporate power to circumvent or create favorable laws, or dismiss the social costs that corporations bent solely on maximizing profits routinely disregard? I'll get back to this in a moment.

Worstall then goes on to criticize me for suggesting that governments also condition market access on receiving some of the social benefits that corporations now wield to play countries off against one another, such as good jobs or investments in research and development. In his eyes, I'm committing the mortal sin of denying the economics of comparative advantage.

On what planet have Forbes' capitalist tools been living? Many of the world's most successful economies -- among them, China and Singapore -- owe their successes in part to their conditioning market access on certain kinds of jobs and investments, including research and development. That's the way they have come to use global corporations, rather than be used by them. It's the same approach Alexander Hamilton advocated more than two centuries ago in proposing how the United States develop its manufacturing industries.

Comparative advantage is nice in theory, but in a world where powerful global corporations are using every strategy imaginable to maximize their profits and powerful governments are strategically employing market access to develop their economies, it's just theory.

Economics writers like those affiliated with Forbes magazine surely are sophisticated enough to know this as well. So why are they so eager to trot out such economic nonsense?

Perhaps because so much profit is at stake that those who pay their salaries -- and who have also put many academic economists on retainers -- prefer that they mislead the public with simplistic economic theory that appears to justify these profits rather than to tell the truth.

My modest suggestion that governments become the agents of their citizens in bargaining with global capital should hardly raise an eyebrow. But the capitalist tools at Forbes, and elsewhere, must be worried that average citizens may be starting to see what's really going on, and might therefore take such a suggestion seriously.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Lessons From the World of Tax Avoidance: How Nations Can Negotiate With Global Capital

2013-05-26T19:50:16-04:00

A Senate report criticizes Apple for shifting billions of dollars in profits into Irish affiliates where its tax rate is less than 2 percent, yet a growing chorus of senators and representatives call for lower corporate taxes in order to make the U.S. more competitive. The American public wants to close tax loopholes and shelters used by the wealthy to avoid paying taxes, yet the loopholes and shelters remain in place.

The same disconnect is breaking out all over the world. The chairman of a British parliamentary committee investigating Google for tax avoidance calls the firm "devious, calculating, and unethical," yet British officials court the firm's CEO as if he were royalty.

Prime Minister David Cameron urges tax havens to mend their ways and vows to crack down on tax cheats, yet argues taxes must be low in the UK because "we've got to encourage investment, we've got to encourage jobs and I want Britain to be a winner in the global race."

These apparent contradictions are rooted in the same reality: global capital, in the form of multinational corporations as well as very wealthy individuals, is gaining enormous bargaining power over nation states.

Global companies are not interested in raising living standards in a particular country or improving any nation's competitiveness. Their singular goal is to maximise returns to their investors. "We don't have an obligation to solve America's problems," said an Apple executive last year. "Our only obligation is making the best product possible" (he might have added "in order to make as much money as possible"). Likewise, the wealth of rich individuals flows all over the world in search of the highest returns and lowest taxes.

Such single-mindedness is abetted by a new wave of technologies, represented by the likes of Google, Apple, Amazon and other new tech behemoths: advanced software applications combined with enormous computing power, all available on the internet in such a way as to enable users to shift resources almost anywhere on earth at the speed of an electronic impulse.

Not only does money move immediately to wherever it can summon the highest return and be subject to the least tax, but jobs can be dispatched almost as quickly to wherever workers get the lowest wages for the most output.

Yet such technologies are simultaneously making nations ever more dependent on global capital, as "brick and mortar" investments in plant and equipment (requiring commitment to a particular geographic location) are replaced by intellectual capital and portfolio investments that are essentially rootless.

These technologies are also displacing workers from assembly-line and routine service jobs (bank tellers, telephone operators, petrol station attendants), as well as any skilled jobs that can be replicated by software (brokers, accountants, insurance claims adjusters). They're even starting to threaten higher-level professionals (how long before doctors are replaced by diagnostic software and professors by online lectures?).

All this, in turn, is putting increasing pressure on politicians to produce more investments and jobs. Because citizens don't like it when global corporations or wealthy individuals are found to avoid taxes, such practices elicit indignant reports, hearings and warnings from political leaders. But little or nothing is done to end these practices because nations are too dependent on those corporations and individuals.

Nations are in a fierce "global race" for investments and jobs, as Cameron says. But it's rapidly turning into a race to the bottom. Effective tax rates on global companies and wealthy individuals are declining almost everywhere; regulations are being dismantled (not even the worst financial disaster since the 1930s has produced much by way of new financial rules); government subsidies to corporations are growing; and real wages are dropping.

In the U.S., the UK and other rich nations, the percentage of gross domestic product going to wages continues to decline while the percentage going to profits steadily increases. Almost all the economic gains in the U.S. since the Great Recession have gone to the wealthiest 1 percent, who own the lion's share of financial assets, while the bottom 90 percent has become poorer.

Individual states in the U.S. have embarked on their own races to the bottom, seeking to lure investments and jobs -- often from neighbouring states -- with lower taxes, higher subsidies, reduced regulation and lower real wages. Here again, the new generation of information technologies is intensifying the race.

But these trends are not inevitable. One way for nations (as well as individual states or provinces) to regain some bargaining leverage over global capital would be to stop racing against one another and join together to set terms for access to their markets.

After all, global capital depends on consumers, and access to large consumer markets such as the U.S. and the EU is essential if global capital is to earn a healthy return. Why should Apple have access to U.S. consumers, for example, if Apple refuses to pay its fair share of taxes to finance the infrastructure and education that Americans need to improve their living standards? Americans could buy from one of Apple's competitors instead.

Likewise, it makes no sense for regions or provinces in any nation to compete against one other for jobs and investment; such races only further strengthen the hand of global capital and reduce the bargaining power of the nation. These contests don't produce net new jobs or investment but only move the jobs and investments from one locale to another and should be prohibited by federal law.

Similarly, the EU could be a bargaining agent for its citizens if it were to condition access to its hugely valuable market on paying taxes in proportion to a global corporation's EU earnings, as well as making investments (including research and development, and jobs) in similar proportion. As a member of the EU, Britain would have more bargaining leverage than it would if it bargained separately. Hence, an important reason for Britain to remain in the EU: rather than a race to the bottom, the UK would thereby join in a race to the top.

Any move toward enhancing the power of nations or groups of nations relative to global corporations and wealthy individuals would surely provoke fierce resistance. Corporate-financed lobbyists, lawyers, political operatives, media empires, campaign donations, think tanks and the potential lures of lucrative jobs and directorships awaiting high government officials will all be deployed in opposition.

This doesn't make the goal of countervailing the power of global capital any less important. It just makes it difficult to achieve.

Why Democrats Can't Be Trusted to Control Wall Street

2013-05-24T15:58:30-04:00

Who needs Republicans when Wall Street has the Democrats? With the help of congressional Democrats, the Street is rolling back financial reforms enacted after its near meltdown.

According to the New York Times, a bill that's already moved through the House Financial Services Committee, allowing more of the very kind of derivatives trading (bets on bets) that got the Street into trouble, was drafted by Citigroup -- whose recommended language was copied nearly word for word in 70 lines of the 85-line bill.

Where were House Democrats? Right behind it. Rep. Sean Patrick Maloney, Democrat of New York, a major recipient of the Street's political largesse, co-sponsored it. Most of the Democrats on the Committee, also receiving generous donations from the big banks, voted for it. Rep. Jim Himes, another proponent of the bill and a former banker at Goldman Sachs, now leads the Democrat's fund-raising effort in the House.

Bob Rubin -- co-chair of Goldman before he joined the Clinton White House, and chair of Citigroup's management committee after he left it -- is still influential in the Party, and his protégés are all over the Obama administration. I like Bob personally but I battled his Street-centric views the whole time I served, and soon after I left the administration he persuaded Clinton to support a repeal of the Glass-Steagall Act.

Jack Lew, Obama's current Treasury Secretary, was chief operating officer of Citigroup's Alternative Investments unit, a proprietary trading group, from 2006 to 2008, before he joined the Obama administration. Peter Orszag, Obama's Director of the Office of Management and Budget, left the Obama Administration to become Citigroup's vice chairman of corporate and investment banking, and chairman of the financial strategy and solutions group.

All these men are honorable. None has broken any law. But they and their ilk in congress -- the Democrats who are now rolling back Dodd-Frank -- don't seem to appreciate the extent to which Wall Street has harmed, and continues to harm, America.

It's not entirely coincidental that the Obama administration never put tough conditions on banks receiving bailout money, never prosecuted a single top Wall Street executive for the excesses that led to the near meltdown, and still refuses to support a tiny tax on financial transactions that would bring in tens of billions of dollars as well as discourage program trading.

Democrats can't be trusted to control Wall Street. If there were ever an issue ripe for a third party, the Street would be it.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Global Capital and the Nation State

2013-05-20T10:54:17-04:00

As global capital becomes ever more powerful, giant corporations are holding governments and citizens up for ransom -- eliciting subsidies and tax breaks from countries concerned about their nation's "competitiveness" -- while sheltering their profits in the lowest-tax jurisdictions they can find. Major advanced countries -- and their citizens -- need a comprehensive tax agreement that won't allow global corporations to get away with this.

Google, Amazon, Starbucks, every other major corporation, and every big Wall Street bank, are sheltering as much of their U.S. profits abroad as they can, while telling Washington that lower corporate taxes are necessary in order to keep the U.S. "competitive."

Baloney. The fact is, global corporations have no allegiance to any country; their only objective is to make as much money as possible -- and play off one country against another to keep their taxes down and subsidies up, thereby shifting more of the tax burden to ordinary people whose wages are already shrinking because companies are playing workers off against each other.

I'm in London for a few days, and all the talk here is about how Goldman Sachs just negotiated a sweetheart deal to settle a tax dispute with the British government; Google is manipulating its British sales to pay almost no taxes here by using its low-tax Ireland subsidiary (the chair of the Parliamentary committee investigating this has just called the do-no-evil firm "devious, calculating, and unethical"); Amazon has been found to route its British sales through a subsidiary in low-tax Luxembourg, and now receives more in subsidies from the British government than it pays here in taxes; Starbucks' tax-avoidance strategy was so blatant British consumers began boycotting the firm until it reversed course.

Meanwhile, at a time when you'd expect nations to band together to gain bargaining power against global capital, the opposite is occurring: Xenophobia is breaking out all over.

Here in Britain, the UK Independence Party -- which wants to get out of the European Union -- is rapidly gaining ground, becoming the third most popular party in the country, according to a new poll for The Independent on Sunday. Almost one in five people plan to vote for it in the next general election. Ukip's overall ratings have risen four points to 19 per cent in the past month, despite Prime Minister David Cameron's efforts to wrest back control of the crucial debate over Britain's relationship with the European Union.

Right-wing nationalist parties are gaining ground elsewhere in Europe as well. In the U.S., not only are Republicans sounding more nationalistic of late (anti-immigrant, anti-trade), but they continue to push "states rights" -- as states increasingly battle against one another to give global companies ever larger tax breaks and subsidies.

Nothing could strengthen the hand of global capital more than such breakups.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Pyromaniacs on the Potomac: The Problem With Obama's Second Term

2013-05-16T14:01:26-04:00

Six months into a second term and the Obama White House is on the defensive and floundering: Benghazi, the IRS's investigations of right-wing groups, the Justice Department's snooping into journalists' phone records, Obamacare behind schedule, the Administration's push for gun control ending in failure.

Should the blame fall mainly on congressional Republicans and their allies in the right-wing media, whose vitriolic attacks on Obama are unceasing?

After all, the only thing the GOP stands for -- the sole mission that unites its warring factions -- is an unwaivering determination to block anything the Administration seeks while distracting public attention from any larger issue.

But surely some of the seeming disarray is due to the president, whose insularity and aloofness make him an easy target, and whose eagerness to compromise and lack of focus continuously blurs his core message.

Is the central goal of his second term to achieve a grand bargain on the budget deficit? Or progress on gun control? Or restore jobs? Or reform the immigration laws? It is difficult to tell.

Vulnerabilities come with any Administration's second term -- when officials are exhausted, public support has worn thin, "A" teams have departed, the media are disenchanted, and all of the low-hanging fruit in a president's agenda has already been picked.

I painfully recall Bill Clinton's second term (I left before Monica). George W. Bush's second term was marred by Iraq and a colossal failure on Social Security. Ronald Reagan's, by the Iran-Contra scandal. Even FDR got mired in a so-called "court-packing" scheme that lost him public and congressional support.

Which is why it's so important for a second-term White House to define itself -- to give the public a clear sense of what it stands for, and how it intends to tackle the largest challenges facing the nation. And then to work hard on this core agenda without becoming overly distracted by the inevitable fires that have to be extinguished along the way.

Even if a president fails to achieve this larger objective, he will at least have established a predicate for the future, and given the public a larger goal around which to mobilize and organize.

Barack Obama is allowing the fires to dominate because he has not defined his core agenda. During the 2012 campaign it appeared to be restoring jobs, rebuilding the middle class, and reversing the scourge of widening inequality. Since then, though, the core has evaporated -- leaving him and his administration vulnerable to every pyromaniac on the Potomac.

The Triumph of Progressivism: Graduation 2013 and 1968

2013-05-14T14:00:08-04:00

Many of you soon-to-be college graduates are determined to make the world a better place. Some of you are choosing careers in public service or joining nonprofits or volunteering in your communities.

But many of you are cynical about politics. You see the system as inherently corrupt. You doubt real progress is possible.

"What chance do we have against the Koch brothers and the other billionaires?" you've asked me. "How can we fight against Monsanto, Boeing, JP Morgan, and Bank of America? They buy elections. They run America."

Let me remind you: Cynicism is a self-fulfilling prophesy. You have no chance if you assume you have no chance.

"But it was different when you graduated," you say. "The sixties were a time of social progress."

You don't know your history.

When I graduated in 1968, the Vietnam War was raging. Over half a million American troops were already there. I didn't know if I'd be drafted. A member of my class who spoke at commencement said he was heading to Canada and urged us to join him.

Two months before, Martin Luther King Jr. had been assassinated. America's cities were burning. Bobby Kennedy had just been gunned down.

George ("segregation forever") Wallace was on his way to garnering 10 million votes and carrying five southern states. Richard Nixon was well on his way to becoming president.

America was still mired in bigotry.

I remember a classmate who was dating a black girl being spit on in a movie theater. The Supreme Court had only the year before struck down state laws against interracial marriage.

My entire graduating class of almost 800 contained only six young black men and four Hispanics.

I remember the girlfriend of another classmate almost dying from a back-alley abortion, because safe abortions were almost impossible to get.

I remember a bright young woman law school graduate in tears because no law firm would hire her because she was a woman.

I remember one of my classmates telling me in anguish that he was a homosexual, fearing he'd be discovered and his career ruined.

The environmental movement had yet not been born. Two-thirds of America's waterways were unsafe for swimming or fishing because of industrial waste and sewage.

I remember rivers so polluted they caught fire. When the Cuyahoga River went up in flames Time Magazine described it as the river that "oozes rather than flows," in which a person "does not drown but decays."

In those days, universal health insurance was a pipe dream.

It all seemed pretty hopeless. I assumed America was going to hell.

And yet, reforms did occur. America changed. The changes didn't come easily. Every positive step was met with determined resistance. But we became better and stronger because we were determined to change.

When I graduated college I would not have believed that in my lifetime women would gain rights over their own bodies, including the legal right to have an abortion. Or women would become chief executives of major corporations, secretaries of state, contenders for the presidency. Or they'd outnumber men in college.

I would not have imagined that eleven states would allow gays and lesbians to marry, and a majority of Americans would support equal marriage rights.

Or that the nation would have a large and growing black middle class.

It would have seemed beyond possibility that a black man, the child of an interracial couple, would become President of the United States.

I would not have predicted that the rate of college enrollment among Hispanics would exceed that of whites.

Or that more than 80 percent of Americans would have health insurance, most of it through government.

I wouldn't have foreseen that the Cuyahoga River -- the one that used to catch fire regularly -- would come to support 44 species of fish. And that over half our rivers and 70 percent of bays and estuaries would become safe for swimming and fishing.

Or that some 200,000 premature deaths and 700,000 cases of chronic bronchitis would have been prevented because the air is cleaner.

Or that the portion of children with elevated levels of lead in their blood would have dropped from 88 percent to just over 4 percent.

I would not have believed our nation capable of so much positive change.

Yet we achieved it. And we have just begun. Widening inequality, a shrinking middle class, global warming, the corruption of our democracy by big money - all of these, and more, must be addressed. To make progress on these -- and to prevent ourselves from slipping backwards -- will require no less steadfastness, intelligence, and patience than was necessitated before.

The genius of America lies in its resilience and pragmatism. We believe in social progress because we were born into it. It is our national creed.

Which is to say, I understand your cynicism. It looks pretty hopeless.

But, believe me, it isn't.

Not if you pitch in.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Sexual Assaults and Nuclear Missiles: What's the Matter With the Military?

2013-05-09T08:28:48-04:00

After years of repeated reports of sexual assaults -- and years of promises to prevent them, and then years of studies and commissions to find the best way of doing so -- a Defense Department study released Tuesday estimates that some 26,000 people in the military were sexually assaulted in the last fiscal year, up from about 19,000 the year before.

Moreover, it turns out the Air Force lieutenant colonel in charge of preventing sexual assault has been arrested for ... sexual assault. According to the police report, a drunken Lt. Col. Jeff Krusinski allegedly approached a woman in a parking lot in Arlington, Va., Sunday night, and grabbed her breasts and buttocks.

Why has it been so difficult for the Air Force or the Defense Department to remedy this problem?

Speaking of which, the Air Force has just removed from duty seventeen launch officers at the Minot nuclear missile base in North Dakota -- one of three bases responsible for controlling, and, if necessary, launching, strategic nuclear missiles -- for violating weapons safety rules. The base commander characterized their negligence as "rot."

One officer was found to have intentionally broken a safety rule that could have compromised the secret codes enabling missiles to be launched.

Secretary of the Air Force Michael Donley points to the removal of the seventeen as evidence that the Air Force has strengthened its oversight of the nuclear force. And he explains that members of the launch crew are usually relatively junior officers with limited service experience.

Reassuring?

Further steps will be taken to prevent one of our missiles from accidentally causing a nuclear holocaust. But I hope the Air Force does a better job remedying this problem than it's done preventing sexual assaults.

The Hollowing Out of Government

2013-05-05T17:54:38-04:00

The West, Texas chemical and fertilizer plant where at least 15 were killed and more than 200 injured a few weeks ago hadn't been fully inspected by the Occupational Safety and Health Administration since 1985. (A partial inspection in 2011 had resulted in $5,250 in fines.)

OSHA and its state partners have a total of 2,200 inspectors charged with ensuring the safety of over more than 8 million workplaces employing 130 million workers. That comes to about one inspector for every 59,000 American workers.

There's no way it can do its job with so few resources, but OSHA has been systematically hollowed out for the years under Republican administrations and congresses that have despised the agency since its inception.

In effect, much of our nation's worker safety laws and rules have been quietly repealed because there aren't enough inspectors to enforce them. That's been the Republican strategy in general: When they can't directly repeal laws they don't like, they repeal them indirectly by hollowing them out -- denying funds to fully implement them, and reducing funds to enforce them.

Consider taxes. Republicans have been unable to round up enough votes to cut taxes on big corporations and the wealthy as much as they'd like, so what do they do? They're hollowing out the IRS. As they cut its enforcement budget - presto! -- tax collections decline.

Despite an increasing number of billionaires and multi-millionaires using every tax dodge imaginable - laundering their money through phantom corporations and tax havens (Remember Mitt's tax returns?) -- the IRS's budget has been cut by 17 percent since 2002, adjusted for inflation.

To manage the $594.5 million in additional cuts required by the sequester, the agency has announced it will furlough each of its more than 89,000 employees for at least five days this year.

This budget stinginess doesn't save the government money. Quite the opposite. Less IRS enforcement means less revenue. It's been estimated that every dollar invested in the IRS's enforcement, modernization and management system reduces the federal budget deficit by $200, and that furloughing 1,800 IRS "policemen" will cost the Treasury $4.5 billion in lost revenue.

But congressional Republicans aren't interested in more revenue. Their goal is to cut taxes on big corporations and the wealthy.

Representative Charles Boustany, the Louisiana Republican who heads the House subcommittee overseeing the IRS, says the IRS sequester cuts should stay in force. He calls for an overhaul of the tax code instead.

In a similar manner, congressional Republicans and their patrons on Wall Street who opposed the Dodd-Frank financial reform law have been hollowing out the law by making sure agencies charged with implementing it don't have the funds they need to do the job.

As a result, much of Dodd-Frank - including the so-called "Volcker Rule" restrictions on the kind of derivatives trading that got the Street into trouble in the first place - is still on the drawing boards.

Perhaps more than any other law, Republicans hate the Affordable Care Act (Obamacare). Yet despite holding more than 33 votes to repeal it, they still haven't succeeded.

So what do they do? Try to hollow it out. Congressional Republicans have repeatedly denied funding requests to implement Obamacare, leaving Health and Human Services (the agency charged with designing the rules under the Act and enforcing them) so shorthanded it has to delay much of it.

Even before the sequester, the agency was running on the same budget it had before Obamacare was enacted. Now it's lost billions more.

A new insurance marketplace specifically for small business, for example, was supposed to be up and running in January. But officials now say it won't be available until 2015 in the 33 states where the federal government will be running insurance markets known as exchanges.

This is a potentially large blow to Obamacare's political support. A major selling point for the legislation had been providing affordable health insurance to small businesses and their employees.

Yes, and eroding political support is exactly what congressional Republicans want. They fear that Obamacare, once fully implemented, will be too popular to dismantle. So they're out to delay it as long as possible while keeping up a drumbeat about its flaws.

Repealing laws by hollowing them out -- failing to fund their enforcement or implementation -- works because the public doesn't know it's happening. Enactment of a law attracts attention; de-funding it doesn't.

The strategy also seems to bolster the Republican view that government is incompetent. If government can't do what it's supposed to do -- keep workplaces safe, ensure that the rich pay taxes they owe, protect small investors, implement Obamacare -- why give it any additional responsibility?

The public doesn't know the real reason why the government isn't doing its job is it's being hollowed out.